Betting on India’s medical devices sector

While consolidation in the hospitals and diagnostics sector has attracted PE/VC investors, it is time such investors favour the development of India’s struggling medical devices manufacturing sector

Even as more pharma companies look to the diagnostics sector to diversify their revenue streams, existing pathology chains are staring at loss of revenue and margins as demand for COVID tests moderates. There will be some recovery as testing for monkeypox might increase, but nothing can stop the disruption in the diagnostics sector. In fact, it is long overdue.

New entrants like pharma companies and Apollo Hospitals are buying up less established regional path lab players and launching deep discounts in a bid to acquire customers. The battle is one for market share, but making a big splash with deep discounts will erode margins and typically only favour large players with economies of scale.

This will set the stage for more acquisitions of smaller regional diagnostics companies in the unorganised segment.

Consolidation in the hospitals segment too continues.

The latest example being PE-backed chain CARE Hospitals picking up majority stakes in regional hospitals like Aurangabad-based CIIGMA Hospitals to expand footprint in Maharashtra.

While consolidation in the hospitals and diagnostics sector has attracted PE/VC investors, it is time such investors favour the development of India’s struggling medical devices manufacturing sector. Commerce Ministry data analysed by the Association of Indian Medical Device Industry (AiMeD) points to a worrying trend of escalating import of medical devices by a record 41 per cent in FY22.

AiMed’s analysis of the six major categories of medical devices – consumables, disposables, electronics and equipments, implants, IVD reagents and surgical instruments that are imported, shows that the growth has been the highest in the ‘electronics and equipment’ category. India imported Rs 40,649 crore worth of medical devices that come under this category in 2021-22 against an import worth Rs 4,569 crore in 2016-17.

The import of surgical instruments went up to Rs 1,260 crore from Rs 243 crore during this period. IVD reagents increased from Rs 361 crore in 2016-17 to Rs 6,564 crore in 2021-22, consumables from Rs 5,249 crore in 2016-17 to Rs 8,488 crore in 2021-22, implants from Rs 384 crore to Rs 3,155 crore and disposables from Rs 2,061 crore to Rs 3,084 crore.

Giving the example of the mobile phone and consumer electronic industries, Rajiv Nath, Forum Coordinator, AiMeD urges the government to take similar policy decisions “to give a level playing field, if not a strategic advantage to domestic manufacturers, while safeguarding consumers.” Unless this is done, he cautions that India will remain 80 per cent import dependent in medical devices, which is a high healthcare security risk.

At the height of the pandemic, in line with demand and fortified by the government’s ‘Aatmanirbhar’ message, many local companies diverted their manufacturing capacities to make masks, PPE kits, thermometers, and gloves. But as the pandemic waned, demand fizzled out, and the AiMeD note alleges that many of the small and medium units have shut shop.

Can the right policy push and patient investors hand hold some of these entrepreneurs to graduate to more complex medical products?

As per AiMeD’s analysis, India’s top five medical device import sources-China, US, Germany, Singapore and the Netherlands – together account for Rs 37,519 crore, or 68 per cent, of the total value of imports. Chinese imports still make up the bulk of medical device imports, nearly equaling the combined value of imports from Germany, Singapore and the Netherlands in 2021 22. Imports from China grew 48 per cent from Rs 9,112 crore in 2020-21 to Rs 13,538 crore in 2021-22. Not far behind, medical device imports from the US also increased steeply by 48 per cent to Rs 10,245 crore in 2021-22 from Rs 6,919 crore in 2020-21.

AiMeD has a couple of policy recommendations to set this situation right. Firstly, the disability factor of 12-15 per cent in manufacturing medical devices in India can be neutralised with a 15 per cent import tariff on Chinese medical devices. This was the strategy deployed for the consumer electronics, mobile phones and toy industries.

Unfortunately, at present, it is difficult to identify the medical device areas where India is dangerously dependent on China, as AiMeD’s data shows that the bulk of the imported medical devices from China (in value terms) fall in the ‘other items’ sub-sections under various major categories.

To set this right, AiMeD’s second recommendation is that the government should consider shifting from an 8 digit HS code to a 10 digit HS code, as done by US and Europe, to give more granular data for enabling better analysis and policy making.

There are signs that some companies are coming forward to make India self-sufficient in medical materials. For example, Tata Steel’s plans for bio ceramics manufacturing will go a long way towards making India self-sufficient in these medical materials like hydroxyapatite, which is used for coating of implants in dentistry and orthopaedics.

But we need many more such projects to increase India’s health security. VC/PE investors might be put off by the longer gestation needed by manufacturing units to show RoI, rather than hospitals and path labs which are on the healthcare delivery side and relatively asset light. The slow change of policy too is a definite downer.

But seeding India’s medical device sector is a sure bet on an economy which is known for quality,

affordable medicines. Replicating India’s pharma strategy in the medical devices sector will achieve health security not just for India but other nations as well.


Aatmanirbhar BharatAIMEDmedical devicesmedtech
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